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A Powerful Technique for Changing Your Trading Psychology

From an evolutionary perspective, it makes sense that we make complex behaviors automatic. Once we can perform tasks mindlessly, we can direct our mind to more immediate, pressing matters. This is how we can drive a car and hold a meaningful conversation. It's also how we can carry out morning routines without effort, allowing us to focus on plans for the day ahead. Our ability to automatize activity greatly expands our scope of thought and action.

What happens, however, when our automatic routines no longer serve a useful purpose? They remain as habit patterns and they are the activities, patterns, and behaviors we're most comfortable with. Many of the problems we face in life today reflect the fact that we're living patterns in the present that, at one time, had an adaptive value. Now they bring negative consequences.

Consider the trader who hesitates before acting on a signal and, when he acts, does so in small size. That pattern of behavior was part of prudence during the trader's early learning period. It guaranteed that he didn't act rashly and impulsively, and it kept losses small. Now that the trader has learned and is showing profitability, the old prudent behaviors make him risk averse. Yesterday's solutions, carried forward to a new reality, become today's problems.

One of the most powerful change techniques in psychology is to take a pattern that is interfering with your happiness, fulfillment, and/or success and actively rehearse that pattern in your mind--visualize it, feel it--while you remind yourself of all the ways that it has hurt you. Literally, you're bringing that pattern to mind--maybe it's overtrading or trading too small--and imagining how many times you've flushed money down the toilet, how many ways this problem has stood in the way of your success.

Visualizing old ways of thinking, feeling, and acting that now bring us pain and allowing ourselves to fully feel all the disgust, guilt, remorse, and anger associated with the consequences of those patterns completely changes our trading psychology. We no longer fall into comfortable habits, because we no longer feel comfortable with those habits. We have turned them into enemies. That is powerful.